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NIL Hurts College Athletics. Here’s How We Fix It

Almost a year ago, the NCAA created new rules that allow college athletes to earn money by selling access to their “name, image, and likeness”. Since then, we’ve been inundated with stories of greed, betrayal, and manipulation worthy of a Shonda Rhimes series.

The latest scandal to grace our screens comes courtesy of Nick Saban saying aloud what everyone in the country already knows — NIL deals are the source of Texas A&M’s recent recruiting success.

Not content to upset Alabama only once a year, Jimbo Fisher responded by paraphrasing the Aggie Code of Honor.

Don’t let the mud-slinging head coach clown show distract you; we are talking about boosters shelling out millions of dollars to convince student athletes to attend a particular college, out in the open and without fear of repercussions.

There are three things I hope to convince you of in this post: players deserve more compensation than they were getting pre-NIL, the current NIL environment is bad for college athletics, and we have a way to fix NIL.

Players deserve compensation

College sports brought in almost $19 billion in revenue in 2019, which is only about 0.02% the size of the entire world’s GDP. It’s a 260% increase from 10 years ago, and if current talks over conference media rights are any indication, it’s going to continue increasing into the future.

https://www.statista.com/chart/25236/ncaa-athletic-department-revenue/

Athletic programs create value beyond selling tickets and media spots; they also help with student recruitment. It’s not uncommon for colleges to see a 10-20% increase in applicants following an appearance in a high-profile sporting event like a national championship.

In addition, a successful and engaging athletics program improves the student experience, providing opportunities for students to socialize and have fun. Theoretically, this is something colleges value independent of any financial gains. It doesn’t hurt that athletic success is associated with more generous alumni donations, either.

So, we don’t quite know exactly how much value student athletes create, but we know it’s at least a significant amount. How much of that value do you think athletes should receive?

Scholarships are not enough

There are two issues at play here. First, a full-ride scholarship doesn’t provide as much value as you might think. Second, not every student athlete receives a full-ride scholarship and sufficient living stipend!

While it varies by institution, the average cost to attend (tuition, fees, books, room and board) a public four-year institution is $25,500, and the average cost to attend a private non-profit four-year institution is $53,200. Over four years, that’s up to $200,000 of expenses that a student athlete on a full-ride scholarship doesn’t have to pay. Of course, most students receive some form of financial aid, and the net price of college after grants and scholarships is about half of the list price, so that $200,000 number is itself overstated.

Expenses paid does not equal value given. I could buy you a $2,000 set of scuba diving gear, but if you have no intention of ever going scuba diving, did I really give you $2,000 of value?

Elite college athletes in football and men’s basketball stand to make tens of millions of dollars in the first few years of their professional careers, enough money that they will never need to work another job and can still retire comfortably. For example, Jalen Pitre, the 37th pick of the 2022 NFL draft, reportedly earned a $3.7 million signing bonus. The median lifetime earnings for a bachelor’s degree holder is only $2.8 million.

It’s not just a second-rounder in the NFL that can afford to never use their college degree for a job. The 2022 minimum rookie salary in the NFL is $705,000, and there is a guaranteed increase for each year played. The minimum rookie salary in the NBA is $953,000.

I’m not saying that a college degree is worthless to student athletes. As the NCAA likes to remind us, the vast majority of student athletes “go pro in something other than sports”. But the players who stand to make the most money from NIL are those who receive the least value from a scholarship.

Now let’s talk about the second issue with scholarships — not everyone receives one, and they don’t always provide enough of a living stipend.

At Division I schools, only 57% of athletes receive some form of athletic scholarship, and only athletes in “head count” sports like Football, Basketball, Tennis, Gymnastics and Volleyball are required to receive a full scholarship.

Without a full scholarship (and in some cases, even with a full scholarship), student athletes can struggle to make ends meet. According to a 2019 survey by The Hope Center, 14% of DI athletes reported being homeless at least once in the prior year. 24% reported being food insecure at least once in the prior month.

In some instances, athletes are trying to provide for themselves and their families back home. Former football player and current Missouri state representative Kurtis Gregory poignantly told CBS, “I had teammates that would send … 75% of [their scholarship] money back home — and they were living on someone’s couch. Their family needed the money back home more than they needed it in Columbia.”

These are complex issues that require more than a simple blog post to adequately discuss. At the very least, they reveal a gap between what athletes currently receive and what they need. To make matters worse, before NIL, the NCAA made it nearly impossible for student athletes to earn money beyond their scholarship.

The previous system limited player compensation

You might be thinking, “If a scholarship doesn’t provide enough money, why don’t student athletes just work?”

Student athletes spend as much time on their sports as many people spend on a full-time job. A 2011 survey conducted by the NCAA found that the average men’s basketball player spent 39.2 hours on basketball during the season. Women’s basketball? 37.6 hours. Football? 43.4 hours.

“Okay, student athletes can’t easily work a job. Can they make money some other way?”

No! Unlike every other college student, athletes were prohibited by the NCAA from receiving many forms of financial compensation, including endorsement contracts, speaking fees, proceeds from selling athletic gear, and modeling (unless the modeling began before enrolling in college, of course).

NCAA restrictions also prohibited student athletes from receiving free food or housing from friends. We saw this happen at Baylor within the last decade. Remember Silas Nacita, our walk-on running back and his journey to play for Baylor?

To recap — student athletes deserve more compensation than they get from scholarships, and the NCAA previously prevented them from earning it. Next up — why the NCAA bungled NIL and created even more problems for collegiate sports.

The current NIL environment is bad for college sports

On June 30, 2021, the NCAA voted to suspend rules prohibiting players from profiting from their name, image, and likeness. Specifically,

Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions.

College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness.

Individuals can use a professional services provider for NIL activities.

Student-athletes should report NIL activities consistent with state law or school and conference requirements to their school.

Sounds good, right? The NCAA press release further stated,

While opening name, image and likeness opportunities to student-athletes, the policy in all three divisions preserves the commitment to avoid pay-for-play and improper inducements tied to choosing to attend a particular school. Those rules remain in effect.

I, for one, am reassured. The NCAA has always done a spectacular job ensuring “key principles of fairness and integrity” while eliminating pay-for-play.

NIL money and the transfer portal are a dangerous combination

What makes college sports so great? It’s incredibly tribalistic. As fans and alumni of a college, we like to believe that all the athletes who play for our college are as unwaveringly loyal as we are.

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We don’t expect that from professional athletes. They get paid to play for whichever team holds their contract. Available to be traded four times in a week, professional athletes can’t afford to be loyal.

College athletes are supposed to be different. We understand if they have to transfer schools due to a family emergency. Life happens. Transfer to get more playing time? At least they tried to make it work here first. But to transfer or commit to the team with the highest bidding booster? That breaks the illusion that the young men and women wearing Baylor colors love the university as much as we do. It weakens the emotional connection between fan and player by disrupting the common bond that we think we all share.

You might say I’m being hyperbolic. I often am, so that’s a fair critique. But I don’t think I’m overstating how much our affinity for a player that commits early and sticks with their commitment, or a player that stays for that fifth year after graduating, brings to our enjoyment of the sport.

We’re already seeing players transfer and commit to schools due to NIL money. In two highly visible cases: Jordan Addison, Pitt’s Biletnikoff wide receiver, will transfer to USC, allegedly on a $3.5 million dollar NIL contract, and Isaiah Wong, a basketball player for Miami, threatened to transfer if his NIL deal wasn’t increased (in response to the NIL deal that Nijel Peck received after transferring to...Miami).

At least when everything was under the table, we could pretend that players chose their college for all the same reasons we did: the small class sizes, beautiful campus with large grassy area where guys play ultimate frisbee, and world renowned cancer research center for when we thought we could be pre-med, pre-law, and pre-business all at the same time.

Unrestricted NIL spending decreases parity across schools

If every school had the same NIL resources at their disposal, the tradeoff would probably be worth it. Some venal players swap schools, but everyone else now has a chance to make extra money.

Unfortunately, even Tim Hardin can’t find a reason to believe that NIL spending will be remotely equal across schools, thus leading to significant disparities in which schools are able to recruit top talent.

Most professional sports leagues understand that parity is a good thing, and they encourage it in a multitude of ways. NFL, NBA, and MLB draft orders are based on how poorly a team performed in the prior year, so the worst teams have the best chance of improving. The NFL and NBA have salary caps to stop a team from spending their way to an unfair advantage. MLB bans smart ideas developed by nerds so teams afraid of analytics aren’t at too large a disadvantage.

In this regard, college sports are already worse off than their professional counterparts. Schools tend to have consistent advantages in recruiting, so good teams tend to stay good and bad teams tend to stay bad. From 2010 to 2022, only 43 different schools have appeared in the top 25 of 247 Sport’s Recruitment Ratings for College Football. 13 schools have appeared in the top 25 every year since 2010, and 20 have appeared at least 10 times.

Yes, evaluation, development, culture, and coaching collectively matter more than recruitment rankings. That’s why Baylor, who has cracked the Top 25 in recruitment rankings for football only once since 2010, has won three Big 12 Championships, while Texas, who has been in the Top 25 every year since 2010, hasn’t won any in that time frame.

That said, there is still a correlation between on-the-field and on-the-court success and recruitment rankings, and anything that disproportionally leads to historically wealthy programs recruiting better than everyone else will decrease parity in the sport and make for a worse product for fans.

Texas needs a better offensive line. Good thing “Horns With Heart” is here with $50,000 annually for each offensive linemen. Billionaire and “Knight in Shining Armor” John Ruiz has singlehandedly given NIL deals to over 100 players at Miami and wants to spend $10 million annually to help them win. And don’t forget about the school responsible for the most recent brouhaha.

To be fair, it’s unclear which schools are benefiting the most from NIL, and there are some examples of non-blue bloods using it to their advantage: Jackson State (with Shedeur Sanders and Travis Hunter) and BYU come to mind. It’s possible that NIL can help struggling programs like Texas catch up with their competition!

But ask yourself this question — which schools do you think have more wealthy alumni willing to spend millions of dollars enticing high school athletes to attend their alma mater? Smaller schools with (relatively) underpaid coaching staffs who struggle to fill their stadiums, or schools that already have massive athletics budgets and state-of-the-art facilities previously paid for by the aforementioned wealthy alumni willing to spend millions of dollars enticing high school athletes to attend their alma mater?

How to fix NIL

In an ideal world, we would maximize the amount of NIL money available to athletes while ensuring that the money does not affect where they choose to go to college. The difficulty is that boosters have multiple reasons to provide NIL deals, and one of them is influencing where athletes choose to enroll. If we devised a system that eliminated this influence, it would almost certainly decrease the amount of money athletes receive.

Fortunately, there are two levers available to the NCAA: regulation and remuneration.

Regulation

Here are a few regulations that may mitigate the aforementioned problems; I’m sure some contract lawyers could tighten up the language, but you should get the idea.

  1. Any sponsor providing NIL compensation to a student athlete before that athlete signs their first LOI with a D1 school must provide the same compensation in the following year.
  2. Student athletes may not receive any new NIL compensation in their first year at a D1 college that they did not receive during the prior academic year. Exceptions can be made on a case-by-case basis for students who transfer due to family reasons.
  3. A sponsor can only sign an NIL deal with a player once every academic year. The full amount of compensation must be paid upfront.
  4. NIL compensation can only be provided by the entity that hopes to benefit from a student athlete’s name, image, or likeness. Money cannot be provided by an individual or group of boosters who do not have a legitimate business interest in the name, image, or likeness of the student athlete.

Both regulation 1 and 2 weaken the connection between the NIL and where the student attends college. Regulation 1 makes it so any NIL deal given to a high schooler must be provided in the following year, regardless of where that student attends. A booster could still try to influence a student’s decision of where to attend by demanding a promise upfront (e.g., “We’ll give you this deal if you promise to attend ABC University next fall”), but the student is ultimately able to renege on any handshake deal and still receive the money.

Regulation 2 makes it so a student athlete cannot receive an NIL deal their freshman year unless it was also given when they were a high schooler. If a booster tries to avoid regulation 1 by waiting until the student enrolls at their desired college before offering NIL money, the student won’t see the money for another year. Theoretically, the delayed compensation makes the recruiting pitch from the booster less salient.

Regulation 3 prohibits contracts that spread NIL compensation across multiple payments, forcing the player to meet (informal) demands of their booster to continue receiving money, such as “entering the transfer portal” or “signing with ABC University”.

You might ask, “Why don’t we just change the rules so NIL deals cannot be contingent on where the student attends?” Well, that’s already in the rules! The contract might not explicitly state, “You must attend ABC University”, but the booster can (unofficially) say, “I’m happy to offer this contract to you when we see you at ABC next fall”.

The final regulation is a strengthening of existing prohibitions by the NCAA against boosters participating in NIL deals. I don’t know if the existing prohibition has too many loopholes (possible) or the NCAA has no spine to enforce it (more likely). Either way, “collectives” need to be removed from the scene.

Most importantly, the NCAA can’t keep turning a blind eye to a particular conference with a penchant for doing whatever this is.

Remuneration

Beyond regulation, the NCAA needs to begin paying players directly. This can help make up for the NIL dollars that boosters stop providing due to restrictions on their recruiting effectiveness.

I don’t want to bog down this post with debates over a precise payment scheme, but here are some numbers that can inform how much paying players would cost in aggregate, all courtesy of a 2018-2019 participation report by NCAA: there are ~175,000 D1 student athletes across the country, and a college with every available team would have ~1,300 student athletes to pay. Giving every player $1,000 would cost $1.3 million a year. You can do the math for bigger payments.

There are limits to how much colleges can afford to pay their players. Per the NCAA, only 25 schools had athletic revenues exceed expenditures in 2019, so most schools can’t support paying players without making sacrifices elsewhere. The NCAA, which generates over a billion dollars a year in profit (almost all from the Men’s Basketball tournament) already distributes the money to schools, and that only partially offsets schools’ operating losses.

Here’s the catch — these universities are non-profit institutions, so they are going to find a way to spend every dollar they make. Even if revenues were twice as large, we wouldn’t expect to see surpluses. Schools will need to reallocate athletic budgets, with more money going towards paying players and less money to coaches and facility upgrades.

For comparison, NFL and NBA players receive around 50% of the revenue generated in their respective leagues.

Admittedly, some schools might bring in so little revenue they can’t feasibly pay their athletes. The NCAA may need to change how they distribute their disbursements to schools to further subsidy these programs. I think it’s possible, and I’m not alone.

But when The Huffington Post asked five sports economists whether the NCAA and its member institutions could afford to pay student-athletes, the response was quite different: a resounding yes. Some of the economists were almost surprised by the question; the answer seemed so obvious to them.

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